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On January 1 of this year, Olive Corporation issued bonds. Interest is payable once a year on December 31. The bonds mature at the end of four years. Olive uses the effective-interest amortization method. The partially completed amortization schedule below pertains to the bonds: Date Cash Interest Amortization Balance January 1, Year 1 $48,813 End of Year 1 $3,600 $3,417 $183 48,630 End of Year 2 ? 48,434 End of Year 3 210 ? End of Year 4 3,376 48,000 Required: 1. Complete the amortization schedule. 2. When the bonds mature at the end of Year 4, what amount of principal will Olive pay investors? 3. How much cash was received on the day the bonds were issued (sold)? 4. Were the bonds issued at a premium or a discount? If so, what was the amount of the premium discount? 5. How much cash will be disbursed for interest each period and in total over the life of the bonds? 6. What is the coupon rate? 7. What was the annual market rate of interest on the date the bonds were issued? 8. What amount of interest expense will be reported on the income statement for Year 2 and Year 9. What amount will be reported on the balance sheet at the end of Year 2 and Year 3?

On January 1 of this year, Olive Corporation issued bonds. Interest is payable once a year on December 31. The bonds mature at the end of four years. Olive uses the effective-interest amortization method. The partially completed amortization schedule below pertains to the bonds: Date Cash Interest Amortization Balance January 1, Year 1 $48,813 End of Year 1 $3,600 $3,417 $183 48,630 End of Year 2 ? 48,434 End of Year 3 210 ? End of Year 4 3,376 48,000 Required: 1. Complete the amortization schedule. 2. When the bonds mature at the end of Year 4, what amount of principal will Olive pay investors? 3. How much cash was received on the day the bonds were issued (sold)? 4. Were the bonds issued at a premium or a discount? If so, what was the amount of the premium discount? 5. How much cash will be disbursed for interest each period and in total over the life of the bonds? 6. What is the coupon rate? 7. What was the annual market rate of interest on the date the bonds were issued? 8. What amount of interest expense will be reported on the income statement for Year 2 and Year 9. What amount will be reported on the balance sheet at the end of Year 2 and Year 3?

Cornerstones of Financial Accounting
Cornerstones of Financial Accounting
4th Edition
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Jay Rich, Jeff Jones
Chapter9: Long-term Liabilities
Section: Chapter Questions
Problem 15MCQ
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 Preparing a Bond Amortization Schedule

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On January 1 of this year, Olive Corporation issued bonds. Interest is payable once a year on December 31. The bonds mature at the end of four years. Olive uses the effective-interest amortization method. The partially completed amortization schedule below pertains to the bonds: Date Cash Interest Amortization Balance January 1, Year 1 $48,813 End of Year 1 $3,600 $3,417 $183 48,630 End of Year 2 ? 48,434 End of Year 3 ? 210 ? End of Year 4 3,376 48,000 Required: 1. Complete the amortization schedule. 2. When the bonds mature at the end of Year 4, what amount of principal will Olive pay investors? 3. How much cash was received on the day the bonds were issued (sold)? 4. Were the bonds issued at a premium or a discount? If so, what was the amount of the premium or discount? 5. How much cash will be disbursed for interest each period and in total over the life of the bonds? 6. What is the coupon rate? 7. What was the annual market rate of interest on the date the bonds were issued? 8. What amount of interest expense will be reported on the income statement for Year 2 and Year 3? 9. What amount will be reported on the balance sheet at the end of Year 2 and Year 3?
Transcribed Image Text:On January 1 of this year, Olive Corporation issued bonds. Interest is payable once a year on December 31. The bonds mature at the end of four years. Olive uses the effective-interest amortization method. The partially completed amortization schedule below pertains to the bonds: Date Cash Interest Amortization Balance January 1, Year 1 $48,813 End of Year 1 $3,600 $3,417 $183 48,630 End of Year 2 ? 48,434 End of Year 3 ? 210 ? End of Year 4 3,376 48,000 Required: 1. Complete the amortization schedule. 2. When the bonds mature at the end of Year 4, what amount of principal will Olive pay investors? 3. How much cash was received on the day the bonds were issued (sold)? 4. Were the bonds issued at a premium or a discount? If so, what was the amount of the premium or discount? 5. How much cash will be disbursed for interest each period and in total over the life of the bonds? 6. What is the coupon rate? 7. What was the annual market rate of interest on the date the bonds were issued? 8. What amount of interest expense will be reported on the income statement for Year 2 and Year 3? 9. What amount will be reported on the balance sheet at the end of Year 2 and Year 3?
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